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PMP Preparation Course [PMBOK V.6]

PLAN PROCUREMENT MANAGEMENT
With

Sherif Sabri, PMP®

Sherif Sabri, PMP®

 Plan Procurement Management

 OVERVIEW
 Plan Procurement Management - Inputs
 Plan Procurement Management - Tools & Techniques
 Plan Procurement Management - Outputs

Sherif Sabri, PMP®

 OVERVIEW

Procurement performed ONCE

Planning
or at predefined
points in the
Process No. (23) Process No. (1) project.
 OVERVIEW

The process of documenting project procurement decisions, specifying the approach and identifying potential sellers.

The key benefit of this process is that

-It determines whether to acquire goods and services from outside the project and, if so, what to acquire as well as how and
when to acquire it.

PLAN PROCUREMENT MANAGEMENT

Inputs Tools & Techniques Outputs
.1 Project charter .1 Expert judgment .1 Procurement management plan
.2 Business documents .2 Data gathering .2 Procurement strategy
• Business case .3 Bid documents
• Market research
• Benefits management plan .4 Procurement statement of work
.3 Project management plan .3 Data analysis .5 Source selection criteria
• Scope management plan • Make-or-buy analysis .6 Make-or-buy decisions
• Quality management plan .4 Source selection analysis .7 Independent cost estimates
• Resource management plan .5 Meetings .8 Change requests
• Scope baseline .9 Project documents updates
.4 Project documents • Lessons learned register
• Milestone list • Milestone list
• Project team assignments • Requirements
• Requirements documentation documentation
• Requirements traceability matrix • Requirements traceability matrix
• Resource requirements • Risk register
• Risk register • Stakeholder register
• Stakeholder register .10 OPA updates
.5 EEF
.6 OPA
 OVERVIEW

In the Plan Procurement Management process; Defining roles and responsibilities related to procurement and
should be documented in the procurement management plan:
 The project manager should ensure that the project team is staffed with procurement expertise at the
level required for the project.
 Participants in the procurement process may include personnel from the purchasing or procurement
department as well as personnel from the buying organization’s legal department.

Typical steps of procurement:

1) Prepare the procurement statement of work (SOW) or terms of reference (TOR).
2) Prepare a high-level cost estimate to determine the budget.
3) Advertise the opportunity.
4) Identify a short list of qualified sellers.
5) Prepare and issue bid documents.
6) Prepare and submit proposals by the seller.
7) Conduct a technical evaluation of the proposals including quality.
8) Perform a cost evaluation of the proposals.
9) Prepare the final combined quality and cost evaluation to select the winning proposal.
10)Finalize negotiations and sign contract between the buyer and the seller.
 Plan Procurement Management - Inputs

1-PROJECT CHARTER:
 contains the objectives, project description, summary milestones and the pre-approved financial
resources.
2-BUSINESS DOCUMENTS
 Business case: The procurement strategy and business case need to be aligned to ensure the business
case remains valid.
 Benefits management plan: describes when specific project benefits are expected to be available, which
will drive procurement dates and contract language.

3-PROJECT MANAGEMENT PLAN

 Scope management plan: describes how the scope of work by the contractors will be managed through the execution
phase of the project.
 Quality management plan: The quality management plan contains the applicable industry standards and codes the
project is required to follow. This information is used in bidding documents such as the RFP and will eventually be
referenced in the contract. This information may be used in supplier prequalification or as part of the selection criteria.
 Resource management plan: has information on which resources will be purchased or leased, along with any
assumptions or constraints that would influence the procurement.
 Scope baseline: contains the scope statement, WBS, and WBS dictionary. Early in the project, the project scope may
still be evolving. The elements of the scope that are known are used to develop the statement of work (SOW) and the
terms of reference (TOR).
 Plan Procurement Management - Inputs

4-PROJECT DOCUMENTS
 Milestone list: This list of major milestones show when the sellers are required to deliver their results.
 Project team assignments: contain information on the skills and abilities of the project team and their availability to support the
procurement activities. If the project team does not have the skills to perform the procurement activities for which they are
responsible, additional resources will need to be acquired or training will need to be provided, or both.
 Requirements documentation; include:
 Technical requirements that the seller is required to satisfy, and
 Requirements with contractual and legal implications that may include health, safety, security, performance, environmental,
insurance, intellectual property rights, equal employment opportunity, licenses, permits, and other nontechnical requirements.
 Requirements traceability matrix: links product requirements from their origin to the deliverables that satisfy them.
 Resource requirements: Resource requirements contain information on specific needs such as team and phyisical resources that may
need to be acquired.
 Risk register: provides the list of risks, along with the results of risk analysis and risk response planning. Some risks are transferred via a
procurement agreement.
 Stakeholder register: provides details on the project participants and their interests in the project, including regulatory agencies,
contracting personnel, and legal personnel.
 Plan Procurement Management - Inputs

5- EEF
 Marketplace conditions;
 Products, services, and results that are available in the marketplace;
 Sellers, including their past performance or reputation;
 Typical terms and conditions for products, services, and results or for the specific industry;
 Unique local requirements, such as regulatory requirements for local labor or sellers;
 Legal advice regarding procurements;
 Contract management systems, including procedures for contract change control;
 Established multi-tier supplier system of prequalified sellers based on prior experience; and
 Financial accounting and contract payments system.

6- OPA
 Pre-approved seller lists: Lists of sellers that have been properly vetted can streamline the steps needed to advertise the
opportunity and shorten the timeline for the seller selection process.

 Formal procurement policies, procedures, and guidelines: Most organizations have formal procurement policies and
buying organizations. When such procurement support is not available, the project team should supply both the resources
and the expertise to perform such procurement activities.

 Contract types: All legal contractual relationships generally fall into one of two broad families:
 Either fixed-price or cost-reimbursable. Also, there is a third hybrid type commonly used called the time and materials
contract.
 Plan Procurement Management - Inputs

6- OPA
 Contract types:

1. Fixed-price contracts: This category of contracts involves setting a fixed total price for a defined
product, service, or result to be provided.
 Should be used when:
 The requirements are well defined and no significant changes to the scope are
expected.
 Firm fixed price (FFP): The most commonly used contract type is the FFP. It is favored by most buying organizations
because the price for goods is set at the outset and not subject to change unless the scope of work changes.

 Fixed price incentive fee (FPIF): This fixed-price arrangement gives the buyer and seller some flexibility in that it
allows for deviation from performance, with financial incentives tied to achieving agreed-upon metrics. Typically,
such financial incentives are related to cost, schedule, or technical performance of the seller. Under FPIF contracts,
a price ceiling is set, and all costs above the price ceiling are the responsibility of the seller.

 Fixed price with economic price adjustments (FPEPA): This type is used whenever the seller’s performance period
spans a considerable period of years, or if the payments are made in a different currency. It is a fixed-price
contract, but with a special provision allowing for predefined final adjustments to the contract price due to changed
conditions, such as inflation changes or cost increases (or decreases) for specific commodities
 Plan Procurement Management - Inputs

6- OPA
 Contract types:

2.Cost-reimbursable contracts: This category of contract involves payments (cost reimbursements) to the
seller for all legitimate actual costs incurred for completed work, plus a fee representing seller profit.
 This type should be used if:
 The scope of work is expected to change significantly during the execution of the
contract.
 Cost plus fixed fee (CPFF): The seller is reimbursed for all allowable costs for performing the contract work and
receives a fixed-fee payment calculated as a percentage of the initial estimated project costs. Fee amounts do not
change unless the project scope changes.

 Cost plus incentive fee (CPIF): The seller is reimbursed for all allowable costs for performing the contract work and
receives a predetermined incentive fee based on achieving certain performance objectives as set forth in the
contract. In CPIF contracts, if the final costs are less or greater than the original estimated costs, then both the buyer
and seller share costs from the departures based upon a pre-negotiated cost-sharing formula, for example, an 80/20
split over/under target costs based on the actual performance of the seller.

 Cost plus award fee (CPAF): The seller is reimbursed for all legitimate costs, but the majority of the fee is earned
based on the satisfaction of certain broad subjective performance criteria that are defined and incorporated into
the contract. The determination of fee is based solely on the subjective determination of seller performance by the
buyer and is generally not subject to appeals.
 Plan Procurement Management - Inputs

6- OPA
 Contract types:

3. Time and material contracts (T&M): (also called time and means) are a hybrid type of contractual
arrangement with aspects of both cost-reimbursable and fixed-price contracts.
 They are often used for
 Staff augmentation:
 Acquisition of experts, and any outside support when a precise statement of work cannot be
quickly prescribed.
 Plan Procurement Management - Tools & Techniques

1-EXPERT JUDGMENT
For this process, expertise should be considered from individuals or groups with specialized
knowledge of or training in the following topics:
 Procurement and purchasing,
 Contract types and contract documents, and
 Regulations and compliance topics.
 Plan Procurement Management - Tools & Techniques

2-DATA GATHERING
 MARKET RESEARCH: includes examination of industry and specific seller capabilities.

3-DATA ANALYSIS
 Make-or-Buy Analysis: to determine whether work or deliverables can best be accomplished by the
project team or should be purchased from outside sources.

 Factors to consider in the make-or-buy decision include

 The organization’s current resource allocation and their skills and abilities,
 The need for specialized expertise,
 The desire to not expand permanent employment obligations,
 The need for independent expertise,
 Evaluating the risks involved with each make-or-buy decision.
 Plan Procurement Management - Tools & Techniques

4-SOURCE SELECTION ANALYSIS

Commonly used selection methods include the following:

1) Least cost: The least cost method may be appropriate for procurements of a standard or routine nature.
2) Qualifications only: The qualifications only selection method applies when the time and cost of a full selection process
would not make sense because the value of the procurement is relatively small.
3) Quality-based/highest technical proposal score: The selected firm is asked to submit a proposal with both technical and
cost details and is then invited to negotiate the contract if the technical proposal proves acceptable. Using this method,
technical proposals are first evaluated based on the quality of the technical solution offered. The seller who submitted
the highest-ranked technical proposal is selected if their financial proposal can be negotiated and accepted.
4) Quality and cost-based: The quality and cost-based method allows cost to be included as a factor in the seller selection
process. In general, when risk and/or uncertainty are greater for the project, quality should be a key element when
compared to cost.
5) Sole source: The buyer asks a specific seller to prepare technical and financial proposals, which are then negotiated. Since
there is no competition, this method is acceptable only when properly justified and should be viewed as an exception.
6) Fixed budget: The fixed-budget method requires disclosing the available budget to invited sellers in the RFP and selecting
the highest-ranking technical proposal within the budget. Because sellers are subject to a cost constraint, they will adapt
the scope and quality of their offer to that budget. The buyer should therefore ensure that the budget is compatible with
the SOW and that the seller will be able to perform the tasks within the budget. This method is appropriate only when
the SOW is precisely defined, no changes are anticipated, and the budget is fixed and cannot be exceeded.
 Plan Procurement Management - Tools & Techniques

5-MEETINGS
 Research alone may not provide specific information to formulate a procurement strategy without additional
information interchange meetings with potential bidders

 Meetings can be used to determine the strategy for managing and monitoring the procurement.
 Plan Procurement Management - Outputs
1-Procurement MANAGEMENT PLAN
 contains the activities to be undertaken during the procurement process.

The Procurement management plan include:

 How procurement will be coordinated with other project aspects, such as project schedule development and
control processes;
 Timetable of key procurement activities;
 Procurement metrics to be used to manage contracts;
 Stakeholder roles and responsibilities related to procurement, including authority and constraints of the project
team when the performing organization has a procurement department;
 Constraints and assumptions that could affect planned procurements;
 The legal jurisdiction and the currency in which payments will be made;
 Determination of whether independent estimates will be used and whether they are needed as evaluation criteria;
 Risk management issues including identifying requirements for performance bonds or insurance contracts to
mitigate some forms of project risk; and
 Prequalified sellers, if any, to be used.
 Plan Procurement Management - Outputs
2-PROCUREMENT STRATEGY
 It determine the project delivery method, the type of legally binding agreement(s), and how the procurement
will advance through the procurement phases.
 Once the make-or-buy analysis is complete and the decision is made to acquire from outside the project, a
procurement strategy should be identified.

The Procurement Strategy Include:

 Delivery methods: are different for professional services versus construction projects.
 For professional services, delivery methods include: buyer/services provider with no subcontracting, buyer/services provider with
subcontracting allowed, joint venture between buyer and services provider, and buyer/services provider acts as the representative.
 For industrial or commercial construction, project delivery methods include but are not limited to: turnkey, design build (DB),
design bid build (DBB), design build operate (DBO), build own operate transfer (BOOT),and others.
 Contract payment types: are separate from the project delivery methods and are coordinated with the buying organization’s internal
financial systems. They include but are not limited to these contract types plus variations: lump sum, firm fixed price, cost plus award
fees, cost plus incentive fees, time and materials, target cost, and others.
 Fixed-price contracts are suitable when the type of work is predictable and the requirements are well defined and not likely to
change.
 Cost plus contracts are suitable when the work is evolving, likely to change, or not well defined.
 Incentives and awards may be used to align the objectives of buyer and seller.
 Procurement phases: Information may include:
 Sequencing or phasing of the procurement, a description of each phase and the specific objectives of each phase;
 Procurement performance indicators and milestones to be used in monitoring;
 Criteria for moving from phase to phase;
 Monitoring and evaluation plan for tracking progress; and
 Process for knowledge transfer for use in subsequent phases.
 Plan Procurement Management - Outputs
3-BID DOCUMENTS
 Are used to solicit proposals from prospective sellers.

INCLUDE:
 Request for information (RFI). An RFI is used when more information on the goods and services to be acquired is needed
from the sellers. It will typically be followed by an RFQ or RFP.

 Request for quotation (RFQ). An RFQ is commonly used when more information is needed on how vendors would satisfy the
requirements and/or how much it will cost.

 Request for proposal (RFP). An RFP is used when there is a problem in the project and the solution is not easy to determine.
This is the most formal of the “request for” documents and has strict procurement rules for content, timeline, and seller
responses.
 Plan Procurement Management - Outputs

4-PROCUREMENT STATEMENT OF WORK (SOW)

 The statement of work (SOW) for each procurement is developed from the project scope baseline and
defines only that portion of the project scope that is to be included within the related contract.

 The SOW describes the procurement item in sufficient detail to allow prospective sellers to determine if
they are capable of providing the products, services, or results.

 The phrase terms of reference (TOR) is sometimes used when contracting for services. [Similar to
the procurement SOW], a TOR typically includes these elements:

 Tasks the contractor is required to perform as well as specified coordination requirements;

 Standards the contractor will fulfil that are applicable to the project;
 Data that needs to be submitted for approval;
 Detailed list of all data and services that will be provided to the contractor by the buyer for
use in performing the contract, if applicable; and
 Definition of the schedule for initial submission and the review/approval time required
 Plan Procurement Management - Outputs
5-SOURCE SELECTION CRITERIA
 In choosing evaluation criteria, the buyer seeks to ensure that the proposal selected will offer the best quality
for the services required.

 The source selection criteria may include

 Capability and capacity;

 Product cost and life cycle cost;
 Delivery dates;
 Technical expertise and approach;
 Specific relevant experience;
 Adequacy of the proposed approach and work plan in responding to the SOW;
 Key staff’s qualifications, availability, and competence;
 Financial stability of the firm;
 Management experience; and
 Suitability of the knowledge transfer program, including training.
 Local content (For international projects)
 Plan Procurement Management - Outputs

6-MAKE-OR-BUY DECISIONS
 A make-or-buy analysis results in a decision as to whether particular work can best be accomplished by the
project team or needs to be purchased from outside sources.

7-INDEPENDENT COST ESTIMATES

 For large procurements, the procuring organization may elect to either prepare its own independent
estimate or have a cost estimate prepared by an outside professional estimator to serve as a benchmark
on proposed responses

8-CHANGE REQUESTS
 A decision that involves procuring goods, services, or resources may require a change request. Other
decisions during procurement planning can also create the need for additional change requests. Changes
to the project management plan, its subsidiary plans, and other components may result in change requests
that impact procurement actions.
 Plan Procurement Management - Outputs

9-PROJECT DOCUMENTS UPDATES

 Lessons learned register: register is updated with any relevant lessons regarding regulations
and compliance, data gathering, data analysis, and source selection analysis.
 Milestone list: This list of major milestones shows when the sellers are expected to deliver their
results.
 Requirements documentation include:
 Technical requirements that the seller is required to satisfy,
 Requirements with contractual and legal implications that may include health, safety, security,
performance, environmental, insurance, intellectual property rights, equal employment
opportunity, licenses, permits, and other nontechnical requirements.

 Requirements traceability matrix: links product requirements from their origin to the deliverables
that satisfy them.
 Risk register: Each approved seller comes with its own unique set of risks, depending on the
seller’s organization, the duration of the contract, the external environment, the project delivery
method, the type of contracting vehicle chosen, and the final agreed-upon price.
 Stakeholder register: is updated with any additional information on stakeholders, particularly
regulatory agencies, contracting personnel, and legal personnel.
 Plan Procurement Management - Outputs

10-ORGANIZATIONAL PROCESS ASSETS UPDATES

 information on qualified sellers.

THANKS FOR WATCHING

Together We will get it done

Sherif Sabri, PMP®